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On 22 December 2017, the United States Congress enacted Public Law 115-97, known as the Tax Cuts and Jobs Act (TCJA), which has been noted as the largest overhaul to the U.S. Internal Revenue Code (IRC) since 1986. As a result of the TCJA, there has been a heightened interest by taxpayers regarding how states may conform to or decouple from this legislation.

Since the enactment of the TCJA, state responses have varied. Several states have issued guidance through public notices or bulletins addressing certain provisions of the TCJA (most commonly, the transitions tax under IRC Section 965). In comparison, fewer states have enacted legislation, which generally ranges in scope from merely revising the IRC conformity date to enacting provisions that decouple from certain components of the TCJA.

As states continue to digest and analyse the impact of federal tax reform through its legislative sessions and budget meetings, we expect more states will issue guidance, and/or revise prior guidance, in the coming months. Thus, the purpose of this article is to provide a summary of the more notable key state tax developments in response to the TCJA.

Taxand's Take

Overall, the guidance provided by these states has given taxpayers and tax advisors some much-needed clarity in an area of complexity and uncertainty.

It is also worth mentioning that due to the significant decrease in the federal corporate income tax rate from 35 percent to 21 percent, a corporation’s state income tax expense is now a larger percentage of its total income tax expense. Thus, taxpayers should remain vigilant for any additional guidance issued by the states and should communicate often with their tax advisors to make sure they accurately forecast and properly report their new state income tax expense.